High Wire Act: Improving the Grid for Renewable Energy

China, the United States, and the European Union take on transmission upgrades

The European Union, China, and the United States have all made significant commitments to renewable energy deployment, at either the central or regional levels. But they all face a major challenge: how to integrate this power into the existing grids. As a new WRI report shows, policies to help transmit renewable energy have not kept pace with renewable energy ambitions.

Despite its potential, renewable energy puts new pressure on transmission infrastructure as it scales up. Excellent sources of sun, wind, and wave power are rarely conveniently located next to industrial centers and cities. The energy generated in remote places must be transmitted to heavily populated areas.

Renewable energy is also intermittent--that is, dependent on the sun shining or the wind blowing. Typically the most cost-effective way to manage intermittency is to draw energy from a large geographic area. This requires moving electricity across a more widely integrated grid than has historically been necessary.

Today’s transmission infrastructure is simply not up to the job. But just adding new wires will not resolve all of the obstacles to integrating renewable energy in the grid. Transmission policy, such as how electricity markets incorporate planning for intermittent sources and operations that keep the power flowing smoothly, must also evolve.

A new report from World Resources Institute, High Wire Act examines the relationship of renewable energy and transmission in the European Union, China, and the United States. Supported by the HSBC Climate Change Centre of Excellence, the research highlights how, in all three markets, transmission is currently a bottleneck to maximizing renewable energy’s cost-effective contribution to the power mix.

The main message for policy makers crafting renewable energy policies and for investors seeking to be a part of this $240 billion a year market is a simple one. Transmission constraints have to be addressed upfront to improve the chances of reaping the long-term rewards of a future powered by renewable energy.

As the report highlights, transmission policy has not kept pace with clean energy ambitions, largely as a result of concerns over associated costs and reliability. Transmission decisions are also shaped as much by complex politics as they are by economics. A deep tension between locally borne costs and national or supra-national benefits emerges over and over again. Local communities are reluctant to accept large infrastructure when most of the benefits are seen at the national level rather than locally. Each region examined in this report is uniquely grappling with this “local” versus “larger society” tension, based on its own political and regulatory norms.

The European Union

The renewable energy market is large and growing in the European Union, stoked by both EU-wide goals and national incentive programs. Recognizing that transmission policy and infrastructure has to evolve, the EU is in the midst of implementing the 3rd Legislative Package on Energy Markets, which is pushing towards more integrated electricity markets by 2014 and assistance for transmission projects that have an EU-wide strategic importance. However, it is unclear how much authority the countries will cede to the EU-wide bodies or whether they will remain largely advisory instead. The wide range of transmission cost policies across countries is also shaping the renewable energy market – driving projects to locate where the transmission costs are lower, rather than where the best renewable energy resources are.

China

China’s renewable energy growth – particularly through wind farms in the remote North and Northwest of the country – poses transmission companies with a large physical challenge. For this reason, among others, China is investing heavily in groundbreaking research into ultra-high voltage transmission, which will allow more efficient transmission over far larger distances.

However, the dramatic growth in new wind turbines has yet to translate into growth in renewable energy in the grid. A lack of connection standards for generators to follow, a lack of coordination between wind farm planning and transmission planning, inflexible electricity dispatching, and a lack of financial incentives for grid operators to buy renewable energy power have all contributed to the problem. As a result, many of these wind turbines are not contributing as much as they could to the national grid. The central government attempted to resolve several of these issues through the 2009 Amendments to the Renewable Energy Law, but it will take time for the effects to be widely felt.

The United States

While Congress is considering President Obama’s proposed Clean Energy Standard, currently renewable energy goals are set at the state level in the United States. This state-by-state approach is also reflected in very strong state control of transmission decisions, which has made large-scale projects or coordinated planning very challenging to accomplish –. The Federal Energy Regulatory Commission (FERC) is considering new federal rules for cost allocation, but substantial reform would likely face both legal and legislative challenges.

Going Forward

In a time of austerity, the issues raised by this report are all the more pressing. Public subsidies for renewables are under pressure and raising consumer costs to pay for renewable energy is even less palatable. Meeting renewable energy goals in the most cost effective manner is critical to the industry’s long-term success. But if the transmission issues highlighted by this research continue to fester, achieving competitive pricing with fossil fuel electricity will be all the more difficult and the goals themselves may fall by the wayside.

The lesson from this report is clear: if renewable energy investors and policy makers are to build a vibrant global renewable energy industry they must first transform the transmission landscape.